1- Registered retirement savings plans

The purpose of retirement assistance programs is to provide individuals with financial independence based on their desired lifestyle when they retire, by complementing public retirement savings plans (see Section XII). Given today’s longer life expectancies, individuals must plan for and invest increasingly greater amounts to cover longer retirement periods.

Tax measures generally allow investment income to accrue in certain tax sheltered plans. Accordingly, it accrues more quickly at very attractive rates. This becomes even more attractive if the taxpayer starts to save for retirement at a very early age as can be seen in the following table:

Starting age	Total investment ($5,000/year until age 65)	Portfolio value at age 65 4% return	Portfolio value at age 65 6% return
25 years	$200,000	$494,133	$820,238
30 years	$175,000	$382,992	$590,604
40 years	$125,000	$216,559	$290,782
50 years	$75,000	$104,123	$123,363

Tax-assisted retirement saving measures are the same federally and provincially. The measures vary depending on whether it is an RRSP or an employer pension plan.

An RRSP is a vehicle for accumulating retirement savings sheltered from tax. RRSP contributions are deductible for tax purposes, subject to prescribed limits. Moreover, the income earned in such plans is only taxable when funds are withdrawn.

Contributions

RRSP contributions are deductible in a particular year if they are made during the year or within 60 days following the year-end. The annual contribution limit is calculated based on the individual’s participation in an RPP or a DPSP during the preceding year, earned income for that year and the contribution limit set by the CRA for the current year.

The maximum RRSP contribution a taxpayer who has not participated in an RPP or a DPSP can make for the year is equal to the lesser of:

• 18% of his/her earned income for the preceding year;
• The annual limit for the year, as shown in the following table:

Year	RRSP Limit
2023	$30,780
2024	$31,560
2025	$32,490
2026	Indexed1

Make your RRSP contribution at the beginning of the year to maximize the tax-deferred investment income.

To contribute the maximum in 2024, 2023 earned income must have been more than $175,333. To contribute the maximum in 2025, 2024 earned income must be at least $180,500.

The aforementioned limits have to be reduced for the value of benefits accumulated in an RPP or DPSP. Accordingly, earned income, the pension adjustment, the pension adjustment reversal and the past service pension adjustment must be considered in calculating the annual contribution limit.

Earned Income

In most cases, 18% of earned income is the contribution limit for a particular year. The earned income calculation is subject to specific rules. For example, individuals who only have pension income or investment income, except rental income, are not entitled to contribute to an RRSP.

The following table summarizes the main items to be considered in calculating earned income:

Earned income for purposes of RRSP contribution limit
Include	Deduct	Exclude
Employment income2	Employment expenses	All investment income, except rental income
Business income	Business loss	Pension income (including CPP/QPP and OAS)
Net rental income from real property	Rental loss from real property	Retiring allowances and taxable DPSP payments
CPP or QPP disability benefits	Union and professional dues	Death benefits
Taxable alimony received	Deductible alimony payments	Amounts received from an RRSP and RRIF

Consider having your children file a tax return reporting income from various part-time work (paper route, baby-sitting, lawn mowing, etc.), even if they do not have to pay income tax, so they can create their own RRSP contribution room.

Pension Adjustment and Past Service Pension Adjustment

An employee’s pension adjustment (PA) in a given year is equal to the deemed value of benefits accumulated in the preceding year on his/her behalf in a RPP or a DPSP. The PA amount to be used for 2024 is indicated in a special box on the 2023 T4 slip.

Example: An individual who had earned a salary of $70,000 in 2023 and who was not a member of an RPP or a DPSP may contribute $12,600 to an RRSP in 2024. If in 2023 he/she was a member of an RPP and the value of benefits accumulated on his/her behalf amounts to $6,400 (i.e., the PA calculated by the employer for 2023), his/her deductible contribution for 2024 is limited to $6,200 ($12,600 – $6,400).

The past service pension adjustment is also to be taken into account when an individual participates in an RPP. This adjustment takes into account changes in the value of the benefits accumulated in past years (e.g. if past services are purchased (see point 3 of this section)) and generally reduces the contribution for the current year.

Pension Adjustment Reversal

If an individual ceases to participate in an RPP or a DPSP before retirement, the benefits paid to him/her may be lower than the declared PA during the period when he/she was a member of the plan. The pension adjustment reversal increases the maximum deductible RRSP contribution, thereby restoring RRSP contribution entitlements which would otherwise be lost.

Unused Contributions

RRSP contributions are based not only on the contribution limit for that year, but also on the unused contribution room from prior years commencing in 1991.

Example: An individual is entitled to contribute $31,560 to his/her RRSP for 2024 but only contributes $9,500. Assuming his/her 2024 earned income is sufficient for the maximum $32,490 deduction in 2025, he/she could contribute and deduct up to $54,550 in 2025 ($32,490 + [$31,560 – $9,500]).

If you receive a bonus or retroactive payment and have unused contribution room, request that such amount be transferred directly to your RRSP and avoid deductions at source thereon.

Unused Deductions

The rules generally permit contributions to an RRSP during a given year without claiming the deduction during that year if they do not exceed the amount of contributions to which the individual is entitled.

Example: A taxpayer who contributes $10,000 to his/her RRSP in 2024 could carry forward all or part of his/her deduction to 2025 and subsequent years.

This may be attractive to an individual who wants to accumulate income tax-free immediately but keep his deduction for a subsequent year when he expects to be in a higher tax bracket.

If your income fluctuates considerably from year to year or if a significant increase in income is anticipated in the following year, consider the possibility of contributing in one year and using the RRSP deduction in a subsequent year.

Information Supplied by the CRA

Taxpayers receive, along with their notice of assessment, a statement from the CRA indicating:

• The maximum amount they may contribute to an RRSP for the year;
• Their unused contribution room after 1990; and
• The RRSP contributions made but not deducted in a year.

Contributions to a Spousal RRSP

A taxpayer may contribute to an RRSP of which his/her spouse is the beneficiary. This allows income-splitting on retirement and, if the spouse is younger, a longer contribution period. Therefore, an individual who is 72 years of age or older, having accumulated contribution room, may contribute to a spousal RRSP until the end of the year during which the spouse reaches 71 years of age.

The amount invested in a spousal RRSP reduces the amount of contributions the taxpayer is entitled to make to his/her own RRSP. A spousal RRSP belongs to the spouse, and the taxpayer who contributes to such a plan has no legal rights to these amounts.

Example: This year, an individual’s annual contribution limit amounts to $10,000. If the individual contributes $7,000 to a spousal RRSP, his/her maximum contribution to his/her own RRSP will be limited to $3,000 for that year. Never­theless, the individual will claim a total deduction of $10,000 in his/her tax return.

Contribute to a spousal RRSP if you expect your retirement income to be higher than that of your spouse.

Anti-Avoidance Rule

If contributions are made to a spousal RRSP and the spouse withdraws funds from the RRSP, the taxpayer who deducted the contributions has to include in his income for the year of the withdrawal the lesser of:³

• The amount paid to the spousal RRSP for the year of withdrawal and the two preceding years (funds must remain in plan for three consecutive December 31);
• The amounts withdrawn by the spouse.

Example: An individual contributes to his/her spouse’s RRSP in February 2024. No withdrawal should be made before January 2027 (assuming no additional contributions are made to the spousal RRSP after 2024).

Contribute to a spousal RRSP prior to the end of the calendar year rather than at the start of the next year in order to minimize the period
during which the anti-avoidance rule is triggered if the spouse makes a withdrawal.

Over-Contributions

There is a penalty of 1% per month for over-contributions made to an RRSP. However, over-contributions totalling up to $2,000 at any time in the year are allowed without penalty.

Example: An individual with earned income of $50,000 in 2023 who contributed $10,500 in 2024 will not be considered as having an over-contribution to which the penalty would apply:

Cumulative contributions after 1990		$	10,500
Less:
Cumulative contribution room ($50,000 × 18%)	9,000
Additional $2,000 allowed	2,000		(11,000)
Cumulative excess		$	–

However, if the taxpayer contributes $14,000 in 2024, a penalty will be charged on $3,000. The penalty could cease to apply as of January 2025 provided the individual has earned income in 2024 creating new contribution room.

Consider making a gift of $2,000 to a major child or grandchild who can invest it in an RRSP⁴ and deduct this contribution when he/she earns eligible income.

Withdrawal of Excess Contributions

If a taxpayer withdraws excess RRSP contributions made, he/she must include the amount in income in the year the withdrawal is made even if the amount was never deducted in any preceding year tax returns. The taxpayer may still be entitled to a deduction if certain conditions are met.

This rule also applies to the $2,000 over-contribution that is not subject to the penalty. This over-contribution becomes attractive if it is an advance contribution that may be deducted in the future. On the other hand, there may also be double taxation, in particular if the taxpayer does not earn new contribution room allowing him/her to deduct such amount.

Financing RRSP Contributions

Borrowing to invest continues to be a leveraging strategy, which must be evaluated carefully taking into account all of an individual’s financial and human factors. The strategy should be compared to systematic saving. In general, if borrowing costs over the loan repayment period are higher than the return earned, systematic saving would be a better alternative. Interest paid on such borrowings is not deductible.

Fund and Investment Transfers

Transfers of Property to an RRSP

Transfers of personally-held property to an RRSP are made at FMV and any capital gains arising on such transfers are taxable. However, capital losses on a transfer cannot be deducted because they are deemed to be nil.

Direct Transfers Between Plans

Provided the plan has not matured, a taxpayer may transfer funds from his/her RRSP to another RRSP, an RPP, or an RRIF of which he/she is the beneficiary. Such transfers are tax-free, provided the transfer takes place directly between the issuers of the plans.

Marital Breakdown

A lump-sum amount can be transferred without immediate tax consequences from an RRSP, RRIF or RPP to a spouse’s plan pursuant to a court order or judgment or a written separation agreement with respect to the division of property between the taxpayer and his/her spouse or former spouse or if the property is being transferred pursuant to the breakdown of the union in settlement of the rights arising from their union.

Retiring Allowance

A retiring allowance is an amount received upon or after an employee’s retirement in recognition of long service or in respect of a loss of office or employment whether or not received as damages or pursuant to an order or judgment of a competent tribunal.

Retiring allowances relating to years of service before 1996 are transferable to an RRSP, subject to a maximum based on the number of years of service. The amount transferable is equal to the total of:

• $2,000 per year of service with the employer;
• $1,500 for each year of service prior to 1989 during which the taxpayer was not a member of an RPP or a DPSP or, if he/she was, the employer’s contribution was not vested in him/her.

If you are contemplating the sale of a business carried on through a corporation, consider paying yourself a retiring allowance for years of service before 1996.

Legal fees incurred by an individual to obtain a retiring allowance are deductible from the allowance received that is not transferred to an RRSP.

Transfer of Income from an RESP to an RRSP

Under certain circumstances, the accumulated income of a contributor’s RESP may be transferred to the RRSP of the person who contributed to it (see Section III).

Transfer of funds from an FHSA to an RRSP

Under certain circumstances, it is possible to transfer funds from a FHSA to an RRSP without any immediate tax consequences (see Section II).

Qualified Investments

Taxpayers should pay particular attention to the types of investments chosen. Any non-qualified investment incurs significant penalties.

Qualified investments include:

• Guaranteed investment certificates issued by a Canadian trust company;
• Cash deposits;
• Bonds guaranteed by a government;
• Shares, bonds and other similar securities of a public company;
• Units of mutual fund trusts;
• Mortgage loans secured by property located in Canada, including a mortgage secured by the annuitant’s residence, provided certain conditions are met.

Prohibited Investments

The concept of “prohibited investments” limits the list of investments that may be held in an RRSP by imposing a specific set of penalties. Included among the main prohibited investments are:

• A debt of the annuitant of a registered plan;
• An investment in an entity with which the annuitant does not deal at arm’s length;
• An investment in an entity in which the annuitant holds a significant interest, i.e.:
  • A share or debt of a corporation, if the annuitant holds 10% or more of a class of shares of the capital stock of a corporation or any related corporation, alone or with one or more persons with whom the holder does not deal at arm’s length;
  • An interest in a partnership or trust, if the annuitant holds, alone or with one or more persons with whom the holder does not deal at arm’s length, an interest equal to at least 10% of the value of all of the interests in this entity.

RRSP Advantage

Generally, an annuitant who benefits from an advantage with regard to an RRSP is subject to tax equivalent to either the FMV of the advantage or, in the case of a debt, the debt amount. Among the main advantages subject to this tax are:

• Benefits from swap transactions between an RRSP and other accounts controlled by the same annuitant;
• Payments made for services such as, dividends paid by a corporation into the RRSP of an individual in lieu of payment to the latter for services provided to the corporation;
• Specified non-qualified investment income that is not withdrawn within 90 days following a notice from the Minister; and
• The income, including a capital gain, attributable to a prohibited investment.

Property Pledged as Security

If property held in an RRSP is pledged as security, the FMV of the property must be included in the income of the taxpayer who is the beneficiary of the plan regardless of the amount of the loan. In the year the guarantee ceases, the beneficiary can claim a deduction of the same amount (ignoring any change in the FMV). If the RRSP is required to pay an amount to honour the guarantee, the amount does not have to be included in the beneficiary’s income a second time. However, the beneficiary loses the right to claim the aforementioned deduction.

Matured RRSPs

Taxpayers may terminate their RRSP at any time. However, plans automatically mature at the end of the calendar year during which the annuitant reaches 71 years of age. At that time, the value of the RRSP property must be included in income unless the annuitant uses the funds to purchase an eligible annuity or an RRIF.

In the year you turn 71, remember to make your annual RRSP contribution before December 31. In December, also make an excess contribution equal to your contribution room for the following year. While the 1% penalty will apply for one month, the contribution will be fully deductible the following year.

Deductions at Source on Withdrawals

Except for withdrawals made for the purposes of the HBP (see Section II) and the Lifelong Learning Plan (see Section III) as well as funds transfers between plans, all single lump-sum payments from an RRSP are subject to tax deductions at source according to fixed rates (see Section I). If certain conditions are met, the CRA can accept the withdrawal of unused contributions without withholding any tax. Benefits from an RRSP under periodic annuity payments are not subject to any withholding tax.

If you withdraw a lump-sum from your RRSP, remember that the amount will be taxed in the year of the withdrawal, in accordance with progressive tax rates applicable to your income level. Consider checking if you will have tax to pay on the withdrawal in addition to the deduction at source.

Administration and Management Fees

RRSP investment advisory fees, plan administration and financing fees can be paid by either the plan or the annuitant without any tax consequences to either. However, plan administration fees paid by the annuitant are not deductible.

From a financial perspective, it is preferable for management and administration fees to be paid out of the RRSP rather than personally.

RRSP and Alternative Minimum Tax

Transfers from an RPP or DPSP to an RRSP as well as RRSP contributions are not subject to AMT (see Section VII).

RRSP Beneficiaries Upon Death

In order to benefit from a tax-free rollover upon death, taxpayers are advised to designate their spouse, a dependent child or grandchild as the beneficiary of their RRSP (see Section XI). Upon death, an RRSP may be transferred to an RDSP belonging to the deceased’s child or grandchild (see Section XI).

Home Buyer’s Plan

See Section II.

Lifelong Learning Plan

See Section III.

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¹ Indexed based on the average salary increase in the industry.

² Including, since 2021, post-doctoral fellowships. An individual can apply to the CRA to have his/her RRSP contribution entitlement adjusted if such a fellowship was received during 2011 to 2020. The request must be submitted before 2026.

³ Rule does not apply if, when the withdrawal is made, the spouses are living separately due to the breakdown of their union. When funds are withdrawn from a RRIF, rule applies to amount in excess of mandatory minimum withdrawals.

⁴ There is no minimum age to contribute to an RRSP. However, the individual must have become 18 years old in the previous year to be entitled to an excess contribution of $2,000 without a penalty.